Wesfarmers sells underwriting business to major player

Wesfarmers sells underwriting business to major player

Wesfarmers sells underwriting business to major player Insurance Australia Group has agreed to purchase the insurance underwriting businesses of Wesfarmers Limited for $1.845bn, strengthening its position in its home markets of Australia and New Zealand.

The acquisition comprises Wesfarmers’ underwriting companies trading under the WFI and Lumley Insurance brands, as well as a ten-year distribution agreement with Coles.

IAG MD & CEP, Mike Wilkins, said the acquisition is a compelling strategic fit for IAG. “This is a unique opportunity, which is expected to deliver significant long term value for IAG shareholders and unlock further growth potential for our businesses in Australia and New Zealand,” he said.

The acquisition is expected to deliver modest earnings per share (EPS) accretion in its first full year of ownership, and at least 5% accretion in the second year (excluding integration costs and amortisation
of identified intangibles). The acquisition will be funded from a combination of ordinary equity, subordinated debt and internal funds. This includes a fully underwritten $1.2bn institutional placement at $5.47 per share, a 4% discount to the closing IAG share price on the Australian Securities Exchange (ASX) on 13 December 2013.

“Acquiring these businesses supports the Group’s strategic priorities of accelerating profitable growth in Australia and sustaining our market-leading position in New Zealand, and we expect attractive EPS
accretion,” Wilkins said.

The integration of Wesfarmers’ underwriting businesses is expected to generate net synergies of approximately $140m per annum pre-tax, with a significant proportion derived from reinsurance.

The integration process is expected to be substantially complete within two years, with pre-tax integration costs of $120m expected to be recognised.

“Wesfarmers’ underwriting operations are highly complementary to our existing intermediated businesses in Australia and New Zealand and will be integrated with our CGU and NZI operations.
This acquisition confirms IAG’s position as the leading intermediated insurer in Australasia and, based on FY13 results, increases our gross written premium (GWP) base by around 18%,”  Wilkins said.

More to follow
6 Comments
  • Alan 16/12/2013 10:43:32 AM
    You would assume they would shut down Lumley finance or try and offload it given they sold CGU a few years back.
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  • Robert Cooper 16/12/2013 11:28:00 AM
    It will be sad to see the Lumley brand disappear as many of us started our careers with them.
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  • Gary Hayward 16/12/2013 12:06:55 PM
    The important issue with this announcement is the further concentration of the Industry within the grips of the BIG 3 which may not have such a big effect in the highly competitive direct retail market but will have the huge effect of dampening competition in the SME and small commercial areas as another competitor is swollowed up by one of the big 3. It will be just like the Personal insurance announcement in the last weeks where Vero / Suncorp have reduced commissions to brokers, so this acquisition will have the same long term effect of bringing tigher control on this area of the market and driving up costs to brokers and reducing income thus making it harder for them to survive. It's time the ACCC looks at some of these acquisitions and see what effect they bring to the Australian market.
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